Court Stays Arbitration of Trademark Dispute Over Lack of Diversity Among Arbitrators

Businesses involved in legal disputes may choose to use alternative dispute resolution (ADR) instead of litigation. California and federal law encourage litigants to use ADR, in part to lessen the burden on the court system. Arbitration, mediation, and other types of ADR may offer advantages over litigation. For example, ADR may offer a faster resolution of a dispute, free from packed court schedules. Unlike litigation, ADR proceedings are not public record, and the parties are often barred from disclosing the details of an arbitration or mediation. Since the results of ADR proceedings are often binding on the parties, ADR practitioners must abide by legal standards that ensure fairness. A court in New York City recently granted a request to stay an arbitration proceeding, after one party alleged that a lack of racial diversity among available arbitrators rendered the proceeding unfair and discriminatory. Carter, et al v. Iconix Brand Group, Inc., et al, No. 655894/2018, petition (N.Y. Sup. Ct., N.Y. Cty., Nov. 28, 2018). If you are facing a similar issue in California, contact a California intellectual property attorney without delay.

An arbitration proceeding resembles a courtroom trial. The parties present their cases, including witnesses and other evidence, to one or more arbitrators, and the arbitrator(s) render a decision. Statutes like the Federal Arbitration Act and the California Arbitration Act hold that agreements to arbitrate disputes are generally “valid, irrevocable, and enforceable.” 9 U.S.C. § 2, Cal. Civ. Pro. Code § 1281. If the parties have agreed in advance to binding arbitration, then state and federal law strictly limit courts’ authority to vacate or revise an arbitrator’s decision to specific situations, such as “corruption, fraud, or undue means.” 9 U.S.C. § 10(a)(1), Cal. Civ. Pro. Code § 1286.2(a)(1).

The arbitration proceeding at issue in the Carter case arises from a rather lengthy series of intellectual property disputes between the plaintiff, a hip-hop artist and record producer, and the defendant, a clothing company. The plaintiff sold a clothing brand to the defendant in 2007, leading to several lawsuits and settlements involving trademark rights. A lawsuit filed by the defendant against the plaintiff in New York in 2017, for example, is still pending. The current arbitration is related to a settlement agreement between the parties from 2015. The defendant alleged breach of the 2015 agreement, and commenced a proceeding with the American Arbitration Association (AAA) in October 2018.
According to the plaintiff, the parties had agreed that each party would choose four arbitrators from a list maintained by the AAA “of arbitrators who specialize in ‘Large and Complex Cases.’” Carter, pet. at 2. The list reportedly contained more than two hundred potential arbitrators, but the plaintiff alleges that “he could not identify a single African-American arbitrator…that had the background and experience to preside over the Arbitration.” Id.

The plaintiff filed suit in a New York state court in Manhattan under a state law that allows a party to an arbitration to ask a court to stay the proceeding. He alleges that the AAA’s lack of qualified African-American arbitrators violates the state constitution’s equal protection clause and state and city antidiscrimination statutes, and contradicts the AAA’s own marketing. The court granted a ninety-day stay in the arbitration in late November.

For more than forty years, business litigation attorney James G. Schwartz has represented Bay Area businesses and business owners in a wide range of litigation and transactional matters. Please contact us online or at (925) 463-1073 today to schedule a free and confidential consultation with a member of our experienced and knowledgeable team.